Apples to Apples or Apples to Oranges
Not all land is created equal and it’s important to take a wide range of factors into consideration when placing value on land in Indiana. Just because the coffee shop is buzzing that a farm sold for $15,000 per acre, this does not mean every parcel or tract in the county is worth the same amount. As markets fluctuate and land values cycle, we continue to track local and regional land sales, keeping a close feel on the pulse of the market. In this article we look at factors that influence today’s land values.
In this article we look at factors that influence today’s land values.
Land is an investment asset and buyers assign value based on the equitable returns that can be gained from the land. Whether you’re financing or paying cash, the math has to work.
The old cliché remains true. Location of land always plays a role in the market value. Farmland close to the core operation of a farmer may be worth more to them as a buyer. Likewise, a convenient location for a wooded or recreational property can increase the value to then interested party.
Markets & Futures
At a recent presentation by Purdue Extension in Benton County, Ag Economist Chris Hurt spoke at length, lending his insights on a variety of Indiana land value and market concerns. “For the time being, cash positions of farmers are headed south fast,” said Hurt, a renowned Professor of ag economics at Purdue University, he added “Demand and supply determine the price & farm income, which in turn affects farmland values.”
Size & Shape
From a farmer or producer perspective, the size and shape of farmland is important. Larger, contiguous pieces of ground may be more attractive as equipment gets larger. Smaller parcels may be more attractive to those in a great cash position and to younger operators trying to grow land holdings.
Soil Quality & Health
Not all soils are created alike. This is an important factor that helps determine farmland value, as well as Conservation value. Higher quality soils mean higher returns for farmers and landowners. Likewise, NRCS and CRP payments are based on soil type – if you are conservation minded, this can affect the rate of return.
Drainage & Tile Systems
Farmland with great tile and drainage commands a higher price and has higher value placed upon it. If soils are poorly drained, a farmland investor will need to spend money on tile systems to achieve higher yields and the returns needed to justify the price per acre. Poorly drained soils are at the bottom of the scale in terms of land values.
Water issues and water rights have long been a top of interest and concern. Irrigated land produces higher yields and returns, thus having a higher market value in Indiana.
Ease to Farm
Farmland that can be easily accessed with large equipment plays a vital role in perceived value on the land. Smaller tracts or odd shaped land takes more time to plant and harvest, thus it may not be as attractive to a farmer. Given a good location, this can change the value for a nearby farmer.
While the land markets are ever-changing, farmland values and the real estate market are local in nature. West Central Indiana land is considered the highest valued in the State of Indiana for both price per acre, cash rent and return on investment. As we enter a cycle of lower corn prices and futures estimates, land remains a strong investment. According to Purdue University, the 25-year average return to land is nearly 12.5%, with an appreciation of 8.21%.¹
When considering an investment in land, keep in mind the variety of factors that influence value and remember that “Price is what you pay. Value is what you get.” – Warren Buffett
¹Annual % increase in Indiana Ag land values from Purdue Survey in June every year.
About the Author
Johnny Klemme is a published author, graduate of Purdue University and Land Broker specializing in farms, recreational property and development land in West Central Indiana. Born and raised on a local farm, his commentary on issues that are important to the farming and real estate community can be found at www.PrairieFarmland.com